Pellet Price, page-782

OK, I've just been given permission in writing to share the information. It wasn't considered confidential, but I wanted agreement before I shared the information.

	Column 1	Column 2	Column 3	Column 4	Column 5
0		Shagang tonnage, mt	$/t	Total tonnage mt	$/t
1	2017	0.93	126.1	1.90	127.2
2	2018	1.01	147.3	2.37	149.7
3	2019	0.85	154.4	2.19	158.3
4	2020	1.01	179.9	2.49	196.8

Please see below the explanation from CFO.

the factors explaining the price differentials are:

1. The difference between the indices (Platts 65% fe + Platts pellet premium) and (MBR 65% pellet index)
2. We have achieved + premium on sales to spot market
3. We have achieved a lower freight rate on CFR spot shipments compared to FOB freight net-back on Shagang shipments
4. Most of all, timing of shipping and final invoice settlement (quotational period) impacts ACTUAL revenues received (and weighted-average unit prices), which do have a significant impact, that cannot be seen when compared to one average price for the year.  This is especially the case when there is high volatility such as the case in the second half of 2020. Shagang had more shipments in the Q1 2020.

The above explains the differences in the past few years (current Offtake arrangements).

What we are recommending to the shareholders is an IMPROVEMENT as follows:

1. Halving the price differential by using both Platts and MBR to price shipments to Shagang
2. What we can achieve in terms of + premium on sales to other customers is UPSIDE
3. Shagang shipments will also be based on CFR going forward
4. There’s an Annual Pricing review mechanism.  Therefore, for example, in paragraph 85 of the Lonergan report, the difference is effectively reduced by half and year-to-date 2021 shows approx. 4.6% difference.  This is a much better outcome than past years’ differences of up to 13.5%.  Grange can assess, for example, if the difference is greater than a certain %, to trigger a price review.

In summary, yes, there is a price difference.  This is the trade-off to long term certainty.  The Company has done what it can to negotiate at arm’s length with our largest customer (and shareholder), and has achieved many improvements to the current existing contract as described in our NOM and the IER.  To sale all production on spot market requires additional time and resources of the Company to undertake and does involve taking on additional risks and uncertainty.